Retailers Charge After Customers

In-house Cards Offer Advantages For Storeowners

As the economy weakens, retailers are using in-house credit cards as another weapon in the fight for customers' business.

Retailers say the in-house cards benefit them in two ways:

* They provide a captive market of customers with a line of credit they can only spend with one company.

* They save stores the percentage fee that credit card operators deduct from each sale.

No wonder, then, that new homeowners get telephone calls from Hechinger offering to sign them up with that hardware chain's own credit card.

Thalhimers offers customers who sign up for the chain's in-house card an additional 10% discount for one day.

And spokesmen for Leggett say the chain's employees are trained to offer a credit card application to any customer who whips out any credit card other than the chain's own.

Whenever a customer charges a purchase with an in-house card, department stores and specialty retailers pocket the fee other cards require. These fees average 1 percent to 2 percent for bank-issued cards such as MasterCard and Visa, according to David Robertson, vice president for the Nilson Report trade publication in Santa Monica, Cal.

Retailers may need as many savings as they can find. Retail sales throughout the year have been sluggish, in part due to public concern about the economy's slowdown.

Analysts predict businesses will find little relief this Christmas, traditionally the most important season of the year for retailers, because of consumer anxiety about the economy.

"There's every indication that this could be a Christmas that only Scrooge could appreciate," said Alan L. Gilman, managing partner in charge of retailing for the accounting firm Arthur Andersen & Co.

Circuit City President Richard L. Sharp said his discount electronics and appliance chain is scaling back its sales projections in light of the economy.

Sales in Circuit City stores that have been opened at least a year dipped for the first time in recent history in September, down 1% from the previous year, according to Sharp.

Barbara Weintraub, credit management director for the National Retail Federation, attributed retailers' recent push of proprietary cards to a number of factors, including the nation's economy.

Weintraub said the rumored recession has slowed credit sales this year. Increased acceptance of third-party cards such as Visa and American Express has taken a chunk out of in-house credit sales as well, she said.

"In general, credit card sales have been down," Weintraub said.

Credit spending had been on the rise in recent years, Robertson said. In 1989 retailers issued 450 million proprietary cards that accounted for $73.3 billion in sales, according to the Nilson Report.

However, while the number of proprietary cards increased 12.4 percent from 1987 to 1989, sales increased only 9 percent over the same period.

As competition for retail dollars gets tighter, proprietary cards may give businesses a stronger customer base, according to retailers.

"Proprietary charge customers will frequent the particular retailer on a much more frequent basis than a non-proprietary card holder," said John Vecchio, credit sales and services vice president for Virginia Specialty Stores in Newport News. "They will generally spend more."

Last month Sears initiated a program with its in-house charge card that emulates the company's successful Discover credit card. Customers receive a $2 certificate, good for future Sears purchases, each time their total charge purchases exceed $200, said company spokesman Gordon Jones.

Jones said the proprietary cards could secure customer loyalty. "What we're looking for is a good, long-term relationship," he said. "Credit customers tend to be more repeat customers."

Retailers have long recognized the importance of proprietary cards.

Paris Crenshaw, Leggett credit manager, said the company has always encouraged its sales associates to ask customers if they would like an in-house card when presented with a Visa or Master Card.

Proprietary card sales remain steady if not strong, Crenshaw said. Given the current state of the economy, "I would said holding our own is good," he said.

Proprietary cards could offer retailers some degree of protection during a recession, Vecchio said, or at least a means to control their own fortune. If a recession forces bank card issuers to restrict credit lines to protect their portfolios, the end result can be a drop in business for retailers, he said.

"By maintaining your own receiveables, you're in a much better position," Vecchio said.

Robertson said many retailers have changed their perception of proprietary cards being at best a break-even proposition. Several of the nation's largest retailers will operate their own banks in the near future to centralize their credit programs, he said.